The Prime Minister last night bought survival for his Labour Government on what looked like bargain terms from Mr Steel and his 12 colleagues in the Liberal Party. But the deal was not done without serious argument in the Cabinet about the long-term consequences of reaching an accommodation with an outside party.

Thanks to an agreement which was not completed until just before the Commons began to debate a motion of no confidence tabled by the Conservative leader, Mrs Thatcher, the Government secured a comfortable majority of 24 in the ultimate Commons division. Voting was 322 to 298.

But it was preceded by a forceful dispute in the Cabinet in which Mr Peter Shore and three other senior ministers contested the idea of an alliance with the Liberals. The conflict ended with an overwhelming Cabinet vote of 20 to 4, with Mr Shore being supported by Mr Benn, the Energy Secretary, Mr Bruce Millan, the Scottish Secretary, and Mr Stanley Orme, the Minister responsible for pensions. These four insisted that such a deal would set the mood for future coalition politics - something which the Labour Party has always opposed.

The Cabinet split was reflected by a similar division on the Left of the Labour Party. More than a dozen Tribunite MPs signed a letter to their party chairman, Mr Cledwyn Hughes, insisting that they were not bound by the arrangement between Mr Callaghan and Mr Steel. But they were opposed by a larger number of Tribune MPs who were ready to acknowledge the inevitability of the Lib-Lab deal.

No one can tell whether this tiny step towards coalition government - and the deal involved little more than an acknowledgement of the existing circumstances of the Government's minority position in the Commons - will encourage the coalitionists in all parties at Westminster to press on towards a genuine coalition. But it was clear that a boost has been given to the mounting pressure for an overall realignment of political forces at Westminster. The result of the division produced a unique combination of jubilation and depression among Labour MPs, most of whom recognised that they are now faced by a new political situation. Nothing quite like it has happened in the memories of members on both sides. Though it has ensured that there will be no immediate election - an election which would almost certainly have been lost by Labour - there will be long-term consequences which cannot yet be grasped.

Mr Steel denied last night that Liberal MPs reached agreement with the Government out of self-interest. It was a "rather interesting experiment".